Karachi, June 1, 2023 – The Karachi Tax Bar Association (KTBA) has expressed its opposition to taxing salary income based on the gross amount.
In its proposals for the budget of 2023-2024, presented to the Federal Board of Revenue (FBR), the tax bar argued that taxing salaried individuals at a higher rate is unjustifiable when business individuals are allowed to calculate their tax obligations based on net income.
READ MORE: Pakistan Considers Restricting Cash Transactions Above Rs. 10,000 at Retail Outlets
The KTBA proposed the introduction of deductible allowances for salaried individuals. Additionally, they suggested that the threshold for salaried income as a portion of total taxable income should be reverted back to 50%.
Another issue raised by the tax bar is related to the deduction of tax credits. According to section 149 of the Income Tax Ordinance, 2001, tax is deducted by employers from the salaries of employees after making adjustments for tax credits. However, the complete tax credits, although legally available, are not adjusted. The KTBA proposed that this section should include all tax credits under Part X Chapter III as admissible.
READ MORE: Commission Recommends Amendments to Taxation on Prizes and Winnings
The tax bar also criticized the removal of tax credits on investments made in shares, mutual funds, sukuk, and life insurance premiums through the Finance Act of 2022. This amendment negatively impacted the salaried class and individuals who make small investments from their savings. The KTBA suggests restoring Section 62 of the Income Tax Ordinance, 2001 to address this issue and provide incentives for investment in the capital market.
Additionally, the tax bar highlighted the need to increase the existing limit for gratuity exemption under clause (13)(iv) of Part I. The current limit of Rs.75,000 has remained unchanged since the promulgation of the ordinance, without considering the inflationary effect. The KTBA proposed raising the limit to Rs.500,000.
READ MORE: Karachi Tax Bar Association Proposes Amendments to Ease Tax Challan Issuance
Regarding employer contributions to recognized provident funds, the tax bar argued that contributions exceeding Rs.150,000 (increased from Rs.100,000 by the Finance Act, 2016) are deemed as income of the employee. However, according to Clause (23), Part I, Second Schedule, the accumulated balance payable to an employee, which includes the employer’s contribution, is exempt from tax. The KTBA believes that tax incidence should not be levied at the time of contribution since the employer’s contribution does not constitute an actual receipt for the employee. They suggest amending Clause (3) of Part I, Sixth Schedule to exempt employer contributions or aligning it with Clause (23), Part I, Second Schedule. Alternatively, the threshold could be based on Rs.150,000 or 1/10th of the salary, whichever is higher.
READ MORE: KTBA Suggests Abolishing Tax on Deemed Income
The KTBA’s proposals aim to address the concerns of salaried individuals and promote fairness in the taxation system, ensuring that the tax burden is more equitable and conducive to economic growth.
